Fed Set to Announce First Rate Hike Since 2023 This Afternoon as Iran War Keeps Inflation Hot

Since the Fed's July meeting, when policymakers held rates steady but saw three of twelve members dissent in favor of a hike, the largest bloc of dissenters in a decade according to ABC News, inflation has refused to cooperate. Consumer prices rose 3.4% year-over-year in August, unchanged from July, according to federal data cited by ABC News. That's more than a full point above the Fed's 2% target.

The Federal Open Market Committee's September meeting began Tuesday and wraps up today, September 16, with a policy statement due at 2 p.m. Eastern and Chair Kevin Warsh set to hold a press conference at 2:30 p.m., according to Kiplinger. Markets are not waiting to find out what happens. CME Group's FedWatch tool put the odds of a quarter-point hike, to a range of 3.75%-4%, at somewhere between 92% and 95% as of Tuesday and Wednesday, per Yahoo Finance, ABC News, and Epoch Times. That would be the Fed's first rate increase since 2023, when the Powell-era hiking campaign wound down.

Why the Fed is under pressure to move

Oil is trading near a four-month high, hovering around $100-$102 a barrel, and AAA data cited by ABC News puts the national average for a gallon of gas above $4.30. Epoch Times reported diesel has hit a record $6 a gallon. The ongoing Iran war is disrupting Middle East energy supplies, including a Saudi refinery halting crude loading, as referenced by The Guardian's live coverage.

Deutsche Bank chief U.S. economist Matt Luzzetti told Yahoo Finance the case for a hike "is strong," citing solid growth, a rebounding job market, and inflation that has shown "limited evidence of falling back" toward target. He added that forward-looking energy indicators suggest the inflation overshoot will persist, and that "it is not clear the Fed is sufficiently restrictive."

Not everyone agrees a hike is the right call. Core inflation, which strips out food and energy, actually eased to 2.4% in August from 2.5%, and the three-month annualized core rate matched the Fed's 2% goal, according to Epoch Times. National Economic Council Director Kevin Hassett told CNBC's "Squawk Box" on September 15 that he personally would not vote to hike if he sat on the FOMC, pointing to that core slowdown and arguing that a supply-driven price shock "is not necessarily inflationary" in the way demand-driven inflation is. Hassett said the White House will nonetheless "respect whatever he does," referring to Warsh.

Among people looking at the same data, there is disagreement over whether a war-driven oil spike is the kind of inflation a rate hike can actually fix, or a supply shock that tighter money won't touch while still slowing hiring and growth. The Fed's own July statement, quoted by Kiplinger, acknowledged the economy was "expanding at a solid pace despite elevated uncertainty" tied to the Middle East conflict, and that job gains had kept pace with the workforce.

The war's price tag, separate from gas pumps

Beyond pump prices, the Iran war has its own accounting problem. Reports from the nonpartisan Congressional Budget Office and the Pentagon Inspector General, cited by NPR, put the war's cost above $30 billion, not counting the cost of rebuilding damaged U.S. installations. The reports document significant destruction at the U.S. Naval Base in Bahrain, which NPR says the Pentagon has not addressed publicly, and the loss of roughly 60 U.S. aircraft, including about 30 Reaper drones priced at $30 million or more apiece.

What else is happening in Washington today

House Republican leaders canceled Thursday's votes, sending members home a day early for the pre-election recess, according to The Hill and The Guardian. The move pushes off a resolution from Rep. Thomas Massie to impeach Defense Secretary Pete Hegseth over the Iran war until lawmakers return November 9, after the midterms. Speaker Mike Johnson called Massie's push "a publicity stunt," per NBC News, while Democrats accused Johnson of ducking accountability, according to The Guardian.

Separately, the Kennedy Center's board voted to close the arts complex after a federal judge blocked a plan to add Trump's name to the building, and Trump has said he'll cancel the center's planned renovation unless a higher court overturns that ruling, NPR reported.

By the market's own numbers heading into the decision, the Nasdaq was up 0.7% to 26,151 and the S&P 500 up 0.3% to 7,609 Wednesday, while the Dow lagged slightly at 52,078 as oil-exposed Chevron slipped, according to Kiplinger. WTI crude had dropped 3.1% to about $102.55 a barrel in the same window.

Franklin Templeton strategist Jeff Schulze expects Warsh to frame any hike as proof the committee "backs its words with action" while declining to commit to a specific path forward, and forecasts the Fed's updated dot plot will pencil in one more hike this year and none in 2027, per Kiplinger. Whether that forecast holds, and whether Warsh's press conference signals a longer tightening campaign or a one-and-done move, will be clear within the hour of the 2 p.m. announcement.